Southern California -- this just in

San Bernardino bankruptcy: Only $150,000 left in bank accounts

July 11, 2012 | 9:39
am

The San Bernardino City Council's decision to file for municipal bankruptcy came days after the city learned it had just $150,000 in its bank accounts, barely enough to make payroll June 15, city officials said.

Shortly before the council's vote Tuesday night, City Atty. James Penman warned the city would "shut down," including public safety agencies, if it didn't have enough money to pay its employees.

By filing for Chapter 9 bankruptcy protection, a section of federal law for municipalities facing insolvency, the city will be able to renegotiate labor contracts, stall payments to creditors and insulate the city from large lawsuit judgments, Penman said. Those protections will allow San Bernardino to retool its budget process and departments and wean itself back to financial health, he said.

The city faces a $46-million deficit, even after the city negotiated $10 million in concessions from employees and slashed the workforce 20% over the last four years.

The city's fiscal crisis has been years in the making, compounded by the nation's crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento's raid on redevelopment funds and a city reserve that is tapped out, officials said.

The expected bankruptcy for the city of 209,000 residents is certain to heighten concerns about the fiscal forecast for other struggling California cities, which have been slashing jobs and services as tax revenues have declined during the prolonged economic slump.

The city joins two others in California — Stockton and Mammoth Lakes — that have turned to bankruptcy in recent weeks to cope with their financial problems, albeit for different reasons.

Stockton, a Central Valley agricultural hub with pockets of entrenched poverty, tried to remake itself during the last decade as a refuge for former San Francisco Bay Area residents. It spent money on a marina, a high-rise hotel and a promenade. They flopped.

Residents also got swept up in the boom years, snapping up new tract homes on the city's outskirts. Soon, many of them were empty, victims of the nationwide foreclosure crisis.

Stockton has one of the highest foreclosure rates in the country.

Tax collection plummeted and the city struggled to pay its debts. It also sized up its labor contracts and declared them unsustainable. Last month — after a lengthy period of mediation — the Stockton City Council voted to stop bond payments, gut employee health and retirement benefits, and squeak by on a spartan budget.

"This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens," Mayor Ann Johnston said in a statement when the city filed its bankruptcy paperwork.

Days later, the High Sierra town of Mammoth Lakes — population 7,700 — also filed for bankruptcy. Its plight had little to do with the recession.

Officials said the town could not afford to pay a $43-million breach-of-contract judgment in a lawsuit brought by a developer. That amount is nearly three times the size of Mammoth Lakes' annual operating budget.